February Report: Boeing 747 Flies High Again

Each year Boeing and Airbus engage in a fierce order battle. In 2017, Airbus won that battle by numbers, but in terms of dollar value, which AeroAnalysis ultimately considers to be more important, Boeing easily outperformed Airbus.

For 2018, Boeing expects order inflow to be moderated. That’s a pretty vague term, but it does not make it less interesting to look at orders and deliveries on a monthly basis to assess the overall appeal of aircraft on the commercial market. By looking at the orders, we can see a combination of willingness to commit, pricing, product and availability coming together. Special attention will be paid to the mix of single aisle aircraft and wide body aircraft, knowing that a single aisle aircraft costs roughly half or a third of a wide body aircraft depending on the model.

In this article, AeroAnalysis will be having a look at the order inflow and deliveries for Boeing in February 2018. If you have missed the January edition, you can read it here.

Orders February

During the month of January, Boeing received a total of 30 orders valued $3.7B:

Boeing booked “just” 30 orders, but the mix was a nice one with all wide body orders coming from cargo carriers. Seventy percent of the orders were for wide body aircraft. The Boeing 747-8F and Boeing 777F can always use some order inflow as those programs have seen rate cuts in recent years. The Boeing 767 order also is a welcome one to fill some slots as FedEx and the tanker program pretty much dictate the tides of Boeing 767 deliveries.

With 30 orders, order inflow was lower than the three-year average of 39 aircraft and 72 for the five-year average for February. So, February was a below average month, there really can’t be any doubt about that. Yet the mix does offer appeal.

Deliveries for February

For 2018, Boeing has set a delivery target of 810-815 units. In December 2017, AeroAnalysis set a 2018 delivery target of 816 units at the low end. Boeing is more or less meeting our expectations here.

In February, Boeing delivered 44 aircraft, up five units from a month earlier:

Boeing delivered 35 Boeing 737 aircraft including six of the MAX variant. Deliveries were significantly lower than the production rate.

Boeing 787 deliveries were in line with the production rate.

Boeing 777 deliveries were 2-3 units lower than what should be expected based on the production rate of 3.5 aircraft per month effective 2018.

The Boeing 767 and Boeing 747 deliveries are more or less driven by the delivery schedules of airlines during the year than by slot availability.

During the month, AeroMexico and Icelandair became the newest operators of the Boeing 737 MAX, which has now been rolled out to 23 customers.

Jet makers tend to start the year softly as deliveries more or less peak toward year-end. For the next 10 months, Boeing needs 61-72 deliveries per month on average. Deliveries were somewhat on the lower side, with wide body deliveries falling for the first two months in the year while single aisle deliveries remained constant. That might be considered slightly disappointing since the production rate of the Boeing 737 went up in 2017 and is expected to be increased further this year, but no delivery increase was visible in Boeing’s delivery numbers.

Important to note is that low deliveries in the first months of the year are pretty common. Deliveries were somewhat lower than what would be expected based on production rates, but we’re not worried about that at this moment.

Book-to-bill ratio

For 2018, Boeing remained somewhat vague on the subject of the book-to-bill ratio, expecting “moderated” order inflow. Obviously, shareholders are hoping to see Boeing having a book-to-bill ratio of 1 or higher for the full year, but AeroAnalysis currently is expecting it to be between .7 and .9. Looking at the monthly book-to-bill ratios does not say a lot, but you have to start somewhere. In February, Boeing booked 30 gross orders while delivering 49 aircraft, indicating a .61 book-to-bill ratio. In terms of value, this ratio was 1.01. For the first two months of 2018 the gross book-to-bill is .62, so Boeing has some work to do to get up to the minimum .7-.9 range that we’d like to see for this year.

Conclusion

As expected, Boeing started the year slow with orders as well as deliveries. The order mix looked nice in February, deliveries in February were soft considering that no increase in delivery output was visible for the Boeing 737 while production did increase in mid 2017. We’re still positive on Boeing’s ability to generate orders for all of its key programs and do believe that Boeing will be able to ramp up production during the year, which would move the bulk of the earnings into the second half of the year. Spirit AeroSystems has deployed teams to suppliers to address bottle necks in the supply chain, and although this signals challenges to smoothly increase the production rate for the Boeing 737, we think it is better to have those teams deployed now rather than later.